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Lecture 18

EC140 Lecture 18: Ch 30 - Unemployment
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Department
Economics
Course
EC140
Professor
Ken Jackson
Semester
Winter

Description
Ch. 30 – Unemployment Employment and Unemployment  In the long-run, increases in employment (on average) match increases in the labour force  In the short-run, changes in unemployment depend on output gaps  People move from employment to unemployment, or between jobs, very frequently o Stable employment data hides considerable labour force movements Measurement  Unemployment rates depend on the fraction of the labour force that does not have a job  Discouraged workers are those that have stopped looking - not captured in the data  Underemployment is not generally captured o Part-time work, when would prefer full-time work o Work requiring skills much lower than a previous job o These people generally keep searching for work Consequences of Unemployment  Lost output o Permanent cost of output that is not produced  Personal costs o 7 to 12% of unemployed workers are unemployed for 12 months or longer o Long-term unemployment may lead to declines in labour productivity  Personal costs are difficult to measure - but may be larger than the output costs Market-Clearing Theories  Modeled market-clearing labour markets in EC120  Supply of labour and demand for labour determine market wage/quantity  People that aren’t working are “voluntarily unemployed” o Frictional and structural unemployment may still exist o Cyclical unemployment may exist - but only if people aren’t really looking for work What are Sticky Wages?  Menu costs o Renegotiating wages is not costless  Long-term employment relationships o Insurance value associated with stable wages o On-the-job training makes employee turnover expensive  Union bargaining o Wages as average revenue vs. marginal revenue  Fluctuations vs. long-run trends o If workers/firms believe wages will rise in the future - may keep wages where they are Frictional Unemployment  Normal turnover of labour - inclu
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